Past decisions are shrinking the spending cap

Connecticut’s budget rules are broken. Lawmakers can fix them.

It’s always nice to keep your spending under budget. But what if paying $75 instead of $100 on a trip to the grocery store meant your new budget was now $75 moving forward?

Connecticut’s outdated, rigid spending cap is punishing our state for decisions made in the past. Under the spending cap, state spending is tied to what happened in the previous budget cycle, which means that every budget controls the next one. When the government spends less than it’s allowed to, the budget shrinks.

The spending cap is one of four caps that control the state’s budget. The rules overlap and were purposely written to be hard to change. Lawmakers must be dedicated to responsibly adjusting the rules to create a budget that works as hard for taxpayers as we do.

The rules were created in 2017 to respond to tough financial times. But because the legislature didn’t meet the spending cap in the 2017-2019 budget cycle, the spending cap is now $1.8 billion lower than it could be. That’s crucial money the state could be using to invest in critical services that help families stay afloat during our cost of living crisis.

There are two guidelines used to dictate how much the spending cap can increase:

• an increase in the public’s personal income, or
• the increase in inflation.

Whichever amount is greater controls the increase. However, that doesn’t mean the budget gets bigger. Instead, the decision made in that 2017-2019 cycle to not meet the spending cap has created a pattern of forced lower spending. Meanwhile, the state is sitting on a massive surplus of at least $1.5 billion, but it’s currently not allowed to invest in crucial services like early childhood education and emergency rental assistance.

The spending cap has forced tough decisions about what the budget can pay for. It’s also caused lawmakers to find ways to get around it – and even flip flop on what counts as “spending” –  to make it work. For example, the legislature sometimes decides that teacher retirement system liabilities aren’t part of the cap, but contributions to the pension fund are. It doesn’t make sense. Changing definitions isn’t transparent or sustainable. Hardworking people of this state deserve an honest budget.

The situation is about to become more dire. Federal pandemic funds have supplemented the budget, but they’re about to run out. That’ll lead to a $1 billion budget cliff that will hit in the 2026 fiscal year unless lawmakers take action. The fiscal rules are also limiting how the state can respond to federal threats to cut funding for healthcare, education, housing assistance, and more. At a time when the price of food, utilities, and rent continues to rise, cuts to critical programs will hurt hardworking families and put even more stress on other programs.

The governor has declared a state of emergency to suspend the spending cap to allow the state budget to cover millions the federal government has cut from Medicaid and prevent people on HUSKY from losing access to it. That one-time change is reliant on the General Assembly approving it with a two-thirds majority in each house. That decision isn’t the long-term solution we need.

The rules can’t be solved with a temporary patch to one cap. Lawmakers must thoughtfully and responsibly fix the rules to create a budget that works as hard for the people of this state as we do.

A joint report by The Connecticut Project and Yale University’s Tobin Center for Economic Policy provides a deep analysis of the fiscal rules. Read the full report for data-driven options for Connecticut’s future.